Where to cut?

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As governments around the world attempt to bring deficits under control and debt to manageable levels, just where to find the savings is a tricky question. Governments face a delicate balancing act as they try to achieve real fiscal discipline without mortally wounding public services, often in precarious political circumstances.

Many OECD governments cut funding for the programmes that absorb the most resources. On average, governments in OECD countries spend the most money on social protection programmes such as unemployment benefits, welfare and pension. This is followed by health programmes, general public services, education programmes, agriculture, and transport and communication. Most governments are focusing fiscal reforms on these “big ticket” areas, which can reduce expenditures over time, making public spending more sustainable.

However some governments have focused on areas that form a relatively small portion of total public spending but provide important public services. For instance, according to 2008 data, environmental protection, targeted by five countries, comprises 1.7% of spending or 0.7% of GDP on average. Likewise, three countries were targeting recreation, culture and religion, which make up only 2.7% of spending or 1.2% of GDP.

Defence, targeted by eight countries, forms on average 3.7% of spending or 1.6% of GDP. And while general public services comprise 13% of spending, the five countries targeting this category focus on foreign aid, which accounts for only 5% of spending in this area, or 0.3% of GDP.

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